VAT Ruling No. 015-05

August 26, 2005 VAT RULING NO. 015-05 113 & 237 Sec. 4.104-2 4.104.5 One Asia Development Corporation 2302 The Orient Square Emerald Avenue, Ortigas Center Pasig City Attention: Mr. Ricardo G. Ong Chief Financial Officer Gentlemen : This refers to your letter dated February 18, 2002 stating that your company, One Asia Development Corporation (OADC),a corporation duly organized and existing under and by virtue of the laws of the Philippines entered into a joint venture (JV) agreement with Riviera Land Corporation (RLC),also a corporation duly organized and existing under and by virtue of the laws of the Philippines to undertake the development and sale of six (6) parcels of land registered in the name of RLC, located in Barangay Old Balara, Capitol Hills, Quezon City, with an aggregate area of 20,712 square meters, more or less, and covered by Transfer Certificates of Title Nos. 155938, 155939, 155940, 155941, 155942 and 155943 of the Registry of Deeds for Quezon City, that this project was originally started by Anscor Land Corporation (ASL) and RLC under a JV agreement which was dissolved by the failure of both parties to execute and deliver a Definitive Agreement as called for under the Memorandum of Agreement executed by them; that OADC took over the role of ASL instead; that in connection with the takeover and as agreed upon in the JV, OADC paid the pre-development expenses which ASL incurred including the input VAT thereon; and that the receipts/invoices of said expenses are in the name of ASL. Based on the foregoing, you now request for a ruling whether OADC can claim the input VAT previously paid by ASL. In reply, please be informed that pursuant to Sections 4.104-2 and 4.104.5 of Revenue Regulations No. 7-95, also known as the Consolidated Value-Added Tax Regulations dated December 9, 1995, which implemented the provisions of E.O. No. 273, as amended by R.A. No. 7716 (now Section 110 of the Tax Code of 1997), viz: "SEC. 4.104-2. Persons who can avail of the input tax credit . The input tax credit on purchase of goods or properties or services shall be creditable: xxx xxx xxx (c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee. "SEC. 4.104-4. Substantiation of claims for input tax credit . (a) Input taxes shall be allowed only if a domestic purchase of goods, properties or services is made in the course of trade or business. The input tax should be supported by an invoice or receipt showing the information as required under Section 108(a) (now Sec. 113(A) and 238 (now Sec. 237) of the Tax Code, as amended. . . ." Moreover, Section 113(A) and Section 237 of the Tax Code provides: SEC. 113(A) Invoicing Requirements . A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt: TCaAHI (1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. "SEC. 237 Issuance of receipts or Sales or Commercial Invoices . All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, that in the case of sales, receipts or transfers in the amount of One Hundred pesos (P100) or more, or regardless of amount, where the sale or transfer is made by a person liable to value-added tax to another person, also liable to value-added tax; or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of purchaser, customer or client. Provided, further, that when the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the taxpayer's Identification Number (TIN) of the purchaser (emphasis supplied). It is clear froze the foregoing provisions of the VAT Regulations and the Tax Code that the buyer must be properly identified in the invoice before it is given the privilege to claim an input tax credit from its purchase of taxable goods and services. This is designated to avoid the possibility of a VAT taxpayer claiming an input tax from a VAT invoice or receipt issued to another taxpayer. It is transparent flow of the VAT from one stage to another which makes the credit-invoice-method VAT superior over other methods of VAT (i.e. Subtraction method, Addition method), which is why we chose this kind of VAT system under our jurisdiction. From the facts of the case, it is very clear that ASL incurred expenses relative to the developmental plan, therefore, the VAT on these expenses can be claimed by it as input tax credit if the VAT invoices were issued in its name. However, it bears emphasis that a joint venture is a VAT taxpayer apart and distinct from the co-venturers, (VAT Ruling No. 157-90) so that if an expense was incurred for the benefit of the joint venture which is a VAT-registered taxpayer and the invoice was issued in the name of the registered joint venture, it is the joint venture which is entitled to claim the input tax credit and not the companies comprising the joint venture. But in either case, double claim of input tax credit by the joint venture and second by the co-venturer or vice versa, is never allowed. Such being the case, without a VAT invoice issued in the name of OADC, the input taxes on the expenses reimbursed by it can not be claimed by it as input tax credit. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. STaHIC Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue